Chapter 3

Profit Resource Rent Tax

696B Interpretation and application (Chapter 3).

(1) In this Chapter—

“cumulative field expenditure”, in relation to an accounting period of a company in respect of a taxable field, means the aggregate of the taxable field expenditure of the company in respect of the taxable field—

(a) for that accounting period, and

(b) for any preceding accounting period beginning on or after 1 January 2007;

“cumulative field profits”, in relation to an accounting period of a company in respect of a taxable field, means the aggregate of the net taxable field profits of the company in respect of the taxable field—

(a) for that accounting period, and

(b) for any preceding accounting period beginning on or after 1 January 2007,

after deducting the amount of any loss incurred in respect of the taxable field for any such period;

“net taxable field profits”, in relation to an accounting period of a company, means the taxable field profits of the company for the accounting period after deducting the amount of corporation tax (if any) which would, apart from this Chapter, be payable by the company for the accounting period if the tax were computed on the basis of those profits;

“profit ratio”, in relation to an accounting period of a company in respect of a taxable field, means an amount determined by the formula—

where—

A is the cumulative field profits of the company in respect of the taxable field in relation to that accounting period, and

B is the cumulative field expenditure of the company in respect of the taxable field in relation to that accounting period;

“profit resource rent tax” has the meaning given to it in section 696C;

“specified licence” means—

(a) an exploration licence, or a reserved area licence, that is granted on or after 1 January 2007, or

(b) a licensing option;

“taxable field” means an area in respect of which a petroleum lease entered into following on from a specified licence is in force;

“taxable field expenditure”, in relation to an accounting period of a company, means the aggregate of the amounts of capital expenditure which consist of—

(a) abandonment expenditure,

(b) development expenditure, and

(c) exploration expenditure,

incurred by the company for the accounting period in respect of a taxable field;

“taxable field profits”, in relation to an accounting period of a company, means the amount of the petroleum profits of the company in respect of a taxable field, after making all deductions and giving or allowing all reliefs that for the purposes of corporation tax are made from, or given or allowed against, or are treated as reducing—

(a) those profits, or

(b) income or chargeable gains, if any, included in those profits.

(2) For the purposes of this Chapter—

(a) the interpretations in section 684 shall apply, with any necessary modifications, in relation to expenditure and activities carried on under a specified licence as they would apply in relation to expenditure and activities carried on under a licence within the meaning of section 684 if such a licence was a specified licence, and

(b) capital expenditure incurred on or after 1 January 2007 by a company in an area which is not a taxable field but which subsequently becomes a taxable field (or part of such a field) shall be treated as if it had been incurred by the company on the day on which the area first becomes a taxable field (or part of such a field).

(3) (a) Where a company carries on a petroleum trade and that petroleum trade includes petroleum activities carried on under a specified licence, such activities shall, for the purposes of this Chapter, be treated in respect of each taxable field as a separate petroleum trade distinct from all other activities carried on by the company as part of the trade.

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(b) For the purposes of paragraph (a), any necessary apportionment shall be made in computing taxable field profits or taxable field expenditure of a company and the method of apportionment adopted shall be such method as appears to the inspector or on appeal the Appeal Commissioners to be just and reasonable.

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(b) Any necessary apportionment in computing taxable field profits or taxable field expenditure of a company under paragraph (a) shall be made on a just and reasonable basis.

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(c) Subject to paragraph (d) the provisions of sections 687 to 690 shall apply for the purposes of this Chapter in relation to any activities treated under paragraph (a) as a separate trade as they apply to a petroleum trade within the meaning of those sections.

(d) For the purposes of applying this Chapter, in relation to an accounting period of a company in respect of a taxable field, no account shall be taken of any charges paid, interest payable or a loss incurred—

(i) by any other company, or

(ii) by the first-mentioned company,

in respect of activities other than activities in relation to that field.